Already More Than a Lost Decade: Income and Poverty Trends Continue to Paint a Bleak Picture

The 2012 poverty and income data released yesterday by the U.S. Census Bureau are yet another reminder that the Great Recession continues to weigh heavily on U.S. households.

Some useful background for yesterday’s release of the 2012 data: 2012 was the first year since 2007 in which the employment situation experienced improvement; however, this improvement was modest. The Great Recession, which began in late 2007, officially ended in the summer of 2009, but the economy continued to lose jobs through early 2010. Then, through the middle of 2011, the job growth we did experience was not adequate to increase the share of the working-age population with a job. Between 2011 and 2012, however, there was some improvement. The share of the working-age (age 16 and over) population with a job dropped from 63.0 percent in 2007 to 58.4 percent in 2011 and rebounded slightly to 58.6 percent in 2012. (The share of the “prime” working-age population—that is, the age 25–54 population—with a job dropped from 79.9 percent in 2007 to 75.1 percent in 2011 and partially rebounded to 75.7 percent in 2012.) Given the tight relationship between the health of the labor market and incomes for most households, it is unsurprising that incomes for most households grew only slightly if at all in 2012 after deteriorating between 2007 and 2011.

However, the modest income growth for non-elderly households (when looking at all households, the median household actually lost income) between 2011 and 2012 barely began to offset the losses incurred during the recession. Indeed, incomes are substantially lower than they were before the recession began for all but the top 5 percent of the income distribution, and the poverty rate remains elevated (it stayed constant at 15.0 percent between 2011 and 2012).

Furthermore, the disappointing trends of the Great Recession and its aftermath come on the heels of the weak economy of 2000–2007. In the full business cycle from 2000 to 2007, poverty actually increased and, for the first business cycle on record, incomes for those at the middle did not rise. Most of the gains to low- and moderate-income families in the strong labor market of the late 1990s have been erased by the weak labor market of the last 12 years.

We begin by examining the income data released on Sept. 17 by the Census Bureau and then turn to an analysis of the new poverty data.

Income

Drawing upon the Census Bureau’s newly released income data, we find:

Between 2000 and 2012, median income for non-elderly households fell from $64,843 to $57,353, a decline of $7,490, or 11.6 percent.

This income erosion is not simply the result of the financial crisis and its aftermath: The weak labor market from 2000 to 2007 led the median income of non-elderly households to fall significantly, from $64,843 to $62,617, the first time in the post-war period that incomes failed to grow over a business cycle.

Between 2011 and 2012, the median man working full time, full year saw meager earnings growth of 0.4 percent, and the median woman working full time, full year experienced a drop of 0.3 percent. This indicates that persistent high unemployment—and the reduced bargaining power that results from a lack of outside job opportunities—hurt earnings growth even for those with full-time, full-year work.

The median woman working full time, full year saw her earnings grow from $29,261 in 1973 to $38,548 in 2002, and then stagnate for a decade; her earnings stood at $37,791 in 2012. Since 1973, the median man working full time, full year has seen no sustained growth, with his earnings dropping from $51,668 in 1973 to $50,323 in 2002—and falling further over the last 10 years to $49,398 in 2012.

Workers with high levels of education have not been spared from weak earnings trends over the last decade. Between 2002 and 2012, full-time, full-year workers age 25 and over with a college degree saw their wages drop—by 6.8 percent for women and by 8.7 percent for men.

Inequality remained historically high in 2012; however, it did not increase materially from 2011. The top 5 percent is the only group to have recovered its prerecession (2007) income levels; all other groups have even lost further ground in the 2009–2012 recovery.

Racial and ethnic disparities have increased substantially since 2000, as racial and ethnic minorities have seen larger income declines. The median white non-Hispanic household is now bringing in 6.3 percent less in income than it did in 2000, while the declines stand at 11.8 percent for the median Hispanic household and 14.8 percent less for the median black household.

Slowly digging out of a deep hole

From 2011 to 2012, median household income for non-elderly households (those with a head of household younger than age 65) increased from $56,802 to $57,353. However, that modest growth barely began to offset the deep losses incurred during the Great Recession and over the early 2000s business cycle. Between 2007 and 2011, median household income for non-elderly households dropped from $62,617 to $56,802, a decline of $5,815, or 9.3 percent. Furthermore, the disappointing trends of the Great Recession and its aftermath come on the heels of the weak labor market from 2000 to 2007, when the median income of non-elderly households fell significantly, from $64,843 to $62,617. Altogether, from 2000 to 2012, median income for non-elderly households fell from $64,843 to $57,353, a decline of $7,490, or 11.6 percent.

From 2011 to 2012, median income for all households, adjusted for inflation, fell from $51,100 to $51,017, a decline of $83, or 0.2 percent. Non-elderly households—those with a head of household younger than 65 years old—experienced somewhat larger declines because they are more exposed to the labor market and therefore most likely to be negatively affected when the labor market is weak.

Figure A shows real median income over the last three decades for all households and, starting in 1994 when the data became easily available, for non-elderly households. A key point here is the comparison between business cycles. From 1979 to 1989, real median income for all households grew $3,162 (from $48,520 to $51,681); from 1989 to 2000, it grew $4,305 (from $51,681 to $55,987). But for the first time on record, over the 2000–2007 business cycle, incomes did not rise, but fell slightly, from $55,987 to $55,627. And with the weak labor market over this period, the real median income of non-elderly households fell significantly, from $64,843 to $62,617. This means that working families are weathering the current economic downturn on the heels of one of the worst economic expansions on record.

In sum, Figure A shows that the disappointing income trajectory since 2000 for all households and for non-elderly households continues through 2012.

Between 2009 and 2012, only households in the top 5 percent of the income distribution saw income gains, as shown in Figure B.The top 5 percent saw an increase of 0.6 percent, while the middle fifth (the heart of the middle class) saw an income decline of 3.5 percent.

Income inequality remained as high in 2012 as in 2011, but the income gap did not grow further. Yet, inequality was at its highest in 2011, and the disappointing income performance between 2011 and 2012 brought no relief for the middle and lower part of the income distribution. Between 2007 and 2011, the middle and bottom sections of the income distribution were hit harder, and households in nearly all parts of the income distribution lost ground.

However, the incomes of the top 5 percent in 2012 fully returned to their prerecession (2007) level. The rest of the income distribution is still far below where it was before the recession started, as the second panel of Figure B shows. For example, middle-fifth household income remains 7.5 percent below where it was in 2007. The figure shows very clearly how the damage caused by the recession was felt much more strongly among low- and moderate-income households. It is also important to note that the rise in inequality since 2007 compounds roughly three-and-a-half decades of rising inequality. For more on these decades of rising inequality, see EPI’s State of Working America, 12thEdition.

Because Census data are somewhat limited, it is worth examining tax data for 2012 data that provide a closer look at the gains of the top 1 percent. In particular, Census data do not include the capital gains reaped from a booming stock market. If these were included, the gains at the top would be far greater than shown in the Census data. See this recent analysis for more on this topic.

Figure C shows that persistent high unemployment has dampened earnings growth even for those who have full-time, year-round employment. In 2012, the median man working full time, full year experienced a slight increase in real earnings of 0.4 percent, from $49,209 to $49,398. The median woman working full time, full year saw a slight drop, from $37,893 to $37,791. Looking over a longer horizon, the trends are stark. The median woman working full time, full year saw her earnings grow from $29,261 in 1973 to $38,548 in 2002, and then stagnate for a decade, to $37,791 in 2012. Since 1973, the median man working full time, full year has seen no sustained earnings growth, with his earnings dropping from $51,668 in 1973 to $50,323 in 2002 and falling further over the last 10 years to $49,398 in 2012. In contrast, the productivity of the economy (for the entire economy, private and public sectors, net of depreciation) grew 86.2 percent from 1973 to 2012.

Figure D examines annual mean earnings of workers age 25 and older with a bachelor’s degree (but no further degree) for men and women. Clearly, even workers with high levels of education have not been spared from weak earnings trends over the last decade. For men, this is a contrast from the previous decade; annual earnings of male college graduates grew steadily throughout the 1990s (especially the late 1990s), peaking at $92,989 in 2000—a 27.0 percent increase from 1991. Women saw equally steady growth over the 1990s, growing 20.6 percent from $49,319 in 1991 to $59,464 in 2000. In contrast, over the last decade since 2002, men’s and women’s earnings have decreased by 8.7 and 6.8 percent, respectively.

Figure D

Mean earnings of full-time, year-round workers with a bachelor’s degree only, age 25 and older, by gender, 1991–2012

Disparities in income between whites and other groups grew in 2012, with the median African American household seeing its income decline 3.8 percent from 2009. Similarly, the median Hispanic household saw its income drop 4.2 percent. This compares with a 2.2 percent drop for the median white non-Hispanic household (see dollar changes in Figure E). The weak labor market of the 2000–2007 business cycle, along with the Great Recession, have wiped out all improvements in median black income since 1994, all improvements in median Hispanic income since 1997, and all improvement in white non-Hispanic median income since 1996. The median white non-Hispanic household is now bringing in 6.3 percent less income than in 2000, compared with declines of 11.8 percent for the median Hispanic household and 14.8 percent for the median black household.

Poverty

We now turn to an analysis of the Census Bureau’s newly released poverty data. Key findings include:

The poverty rate was 15.0 percent in 2012, unchanged from 2011. The total number of people in poverty in the United States was 46.5 million in 2012.

The poverty rate for children was 21.8 percent in 2012, representing 16.1 million kids living in poverty. In 2012, more than one-third (34.6 percent) of all people living in poverty were children.

The poverty rate for working-age people (age 18–64) hit 13.7 percent in 2012, unchanged from 2011. Poverty among the elderly (age 65 and older) remained statistically unchanged at 9.1 percent.

In 2012, the share of the poor below half of the poverty line was 43.9 percent. This means that 6.6 percent of the overall population falls below half the poverty line.

Nearly 1 in 10 children (9.7 percent) lived below half of the poverty line in 2012.

Non-Hispanic whites maintained far lower poverty rates than any other racial/ethnic group, at 9.7 percent, compared with 27.2 percent for blacks and 25.6 percent for Hispanics.

In 2012, over one-third of black children (37.9 percent) and Hispanic children (33.8 percent) lived in poverty. The poverty rate for families with children headed by single mothers was 40.9 percent in 2012. Of the 7.1 million families with children living in poverty in 2012, 4.1 million were headed by a single mother.

Policies enacted in the years following the War on Poverty, which marks its 50th anniversary in January 2014, helped to forestall even worse trends in 2012. In 2012, 1.7 million people were kept out of poverty by unemployment insurance, and 15.3 million elderly Americans were kept out of poverty by Social Security. If food stamps (i.e., the Supplemental Nutrition Assistance Program, or SNAP) were added to the Census definition of money income, four million fewer people would be in poverty.

Weak economy leaves elevated shares of Americans living in hardship

The United States’ poverty rate was unchanged from 2011 to 2012, holding steady at 15.0 percent. The number of people living below the poverty line in 2012 was 46.5 million. As Figure F illustrates, poverty tends to follow a cyclical pattern, rising in recessions and falling in recoveries. The last full business cycle, 2000 to 2007, is an exception. The poverty rate increased between 2000 and 2007, from 11.3 percent to 12.5 percent, then continued to rise through the Great Recession, stagnating around 15.0 percent in 2012. Since 2000, poverty has generally been on an upward trajectory. It is likely, given predictions of the labor market’s future health, that the poverty rate will not return to 2000 (or even 2007) levels for some time.

Figure F also shows that the poverty rate for children in 2012 was 21.8 percent, far higher than the overall rate. The 2012 “children’s poverty rate” represents 16.1 million kids living in poverty. In 2012, more than a third—34.6 percent—of all people living in poverty were children.

All of the decline in poverty achieved during the business cycle of the 1990s has been reversed. From 1989 to 2000, overall poverty declined by 1.5 percentage points, and child poverty dropped by 3.4 percentage points. From 2000 to 2012, however, poverty increased overall by 3.7 percentage points, and by 5.6 percentage points among children. The large increase in poverty suggests that as anti-poverty policies have come to depend more on paid work as the main pathway out of poverty, the safety net has become less effective in reducing economic hardship when the economy and job market are underperforming.

The non-elderly poverty rate, which looks at those who are 18–64 years old, was 13.7 percent in 2012 (Figure G). This represents a small drop from its historical peak of 13.8 percent in 2010, and the rate has remained unchanged since 2011. Over the same 46 years (1966–2012) covered in the figure, the poverty rate for persons age 65 and older dropped precipitously, due in part to Social Security payments, which have effectively lifted millions of elderly Americans out of poverty. In 2012, the elderly poverty rate was 9.1 percent, statistically unchanged over the year.

Figure H displays the share of the poor falling below half of the poverty line from 1975 to 2012; this metric tracks the depth of poverty by measuring those living on half the subsistence rate. In 2012, 50 percent of the poverty line for a two-adult, two-child family was $11,642. In 2012, 43.9 percent of the poor were living below half of the poverty line. As a share of the overall population, this means that 6.6 percent of Americans were living below half of the poverty line in 2012. Turning to the population under 18 years old, nearly 1 in 10 children (9.7 percent) were below half the poverty line in 2012 (not shown).

As shown in Figure I, poverty rates and changes in those rates vary dramatically across racial and ethnic groups. Non-Hispanic whites experienced the lowest rate of poverty, at 9.7 percent in 2012, while the rates for blacks and Hispanics were more than two-and-a-half times higher, at 27.2 percent and 25.6 percent, respectively.

Figure I

Poverty rate, by race and ethnicity, 2011–2012

Note: Races and ethnicities are presented in the following mutually exclusive categories: White refers to non-Hispanic whites, black refers to non-Hispanic blacks, and Hispanic refers to Hispanics of any race.

The 2000s have all but erased any gains made in the 1990s in reducing poverty. This recession has only exacerbated the damaging trends over the last decade, leaving large shares of some of the most vulnerable populations living below the poverty line. Figure J shows changes over time in poverty rates for particularly vulnerable populations—racial and ethnic minority children, families with children, and single-mother families. While the rate of poverty among black children fell between 2011 and 2012, black children experienced a 6.7 percentage-point increase in poverty over 2000 to 2012, hitting 37.9 percent in 2012. Hispanic children experienced an increase in poverty of 5.4 percentage points over the same period, reaching 33.8 percent.

Note: Races and ethnicities are presented in the following mutually exclusive categories: White refers to non-Hispanic whites, black refers to non-Hispanic blacks, and Hispanic refers to Hispanics of any race.

Source: Authors' analysis of Current Population Survey Annual Social and Economic Supplement Historical Poverty Tables (Tables 3 and 4)

Families with children experienced an increase in poverty of 5.7 percentage points between 2000 and 2012, hitting 18.4 percent in 2012. For families headed by single mothers, there was a 7.9 percentage-point jump, from 33.0 percent in 2000 to 40.9 percent in 2012. In 2012, 4.1 million of the 7.1 million families living in poverty were headed by single mothers.

The upcoming 50th anniversary of the War on Poverty in January 2014 makes it a particularly instructive time to step back and examine how government policies effectively reduce the incidence of poverty in the United States. The poverty rate and associated trends would have been worse if public policies had not provided a necessary safety net. In 2012, 1.7 million people were kept out of poverty by unemployment insurance. That is, unemployment benefits went to families that otherwise would likely have suffered steeper income declines, and in some cases dropped below the poverty line. Social Security is a strong safety net that keeps millions of elderly Americans out of poverty. In 2012, 15.3 million elderly were kept out of poverty by Social Security. Furthermore, if food stamps (SNAP) were added to the Census definition of money income, four million fewer people would be in poverty.

While many government efforts have succeeded in reducing poverty in this country, there have been periods of even greater strides in poverty reduction. For instance, the period between 1959 and the mid-1970s saw great declines in poverty (Figure K). As the country got richer, on average, poverty fell precipitously. If the relationship between per capita GDP growth and poverty that prevailed from 1959 to 1973 had held, the poverty rate would have fallen to zero in the mid-1980s. The fact remains that rising inequality has kept poverty from falling as the economy has grown over the last three decades.

Note: Poverty rate is simulated by a model based on the relationship between per capita GDP growth and the official poverty rate between 1959 and 1973.

Source: Authors' analysis of Current Population Survey Annual Social and Economic Supplement Historical Poverty Tables (Tables 2 and 4) and Bureau of Economic Analysis National Income Product Accounts public data. Analysis using Sheldon Danziger and Peter Gottschalk's 1995 book, American Unequal (Russell Sage Foundation and Harvard University Press).

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EPI is an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans.